The US real estate market has recently sent alarming signals, with transaction activity falling below the levels seen at the onset of the 2008 subprime mortgage crisis. According to the latest data released by industry institutions, the annualized pace of existing home sales in the US dropped by nearly 2% month-on-month in July to 4.06 million units. In January 2008, this indicator was still holding at 4.89 million units, which was already a nine-year low before the crisis fully unfolded. The current sluggishness in the housing market reflects that soaring mortgage rates are continuously squeezing homebuyer demand, while the reluctance of homeowners who secured low rates in the past to sell has further exacerbated the freeze in market liquidity, creating a rare deadlock in both volume and price.
While transactions have stagnated, listings on the market continue to climb, with the months of supply for unsold homes now stretching to about 4.6 months. This subtle shift in the supply-demand dynamic is gradually giving buyers the upper hand. Although the national median existing-home price in July still posted a marginal 2% year-on-year increase, this largely masks the cooling in localized markets. In areas with severe inventory backlogs, home prices have already shown signs of softening. Industry estimates suggest that in similar cycles of supply-demand imbalance, the median home price typically faces a downside risk of around 2%. This pressure for price adjustments, spreading from localized areas to the broader market, is becoming a sword of Damocles hanging over the macroeconomy.
A deeper concern than asset price volatility lies in its potential impact on household consumption. The real estate boom over the past few years has generated substantial paper wealth for American families, serving as a crucial cornerstone for consumer confidence. Once home prices enter a downward trajectory, the psychological blow from this asset shrinkage will directly dampen consumers' willingness to spend. Even if capital markets perform strongly, if real estate, which constitutes the bulk of household assets, begins to depreciate, the resulting negative wealth effect could easily offset the gains from the stock market, thereby dragging down overall consumption data.
The resilience of the US economy at present is largely attributable to the capital frenzy in the artificial intelligence sector and the wealth-creation effect of the tech sector, which have somewhat masked the sluggishness in traditional industries and delayed the onset of a recession. However, if the deadlock in the housing market cannot be broken, with high home prices and elevated mortgage rates continuously deterring genuine demand, while the mortgage rate lock-in effect hinders the release of housing supply, sellers will ultimately have to lower prices to unlock liquidity. When the adjustment in the real estate market further undermines household wealth and consumer confidence, the growth prospects originally buoyed by the tech boom will face severe tests.
